Factors that influence Elasticity of Demand

Elasticity of demand refers to change in quantity demanded of a good in response to change in price of that good. Elasticity of demand is of 5 types which I have already explained; now let’s look at the factors which influence the elasticity of demand of a good –

1. If a good has close substitutes than any increase in price of that good will lead to drastic fall in demand of a good and it lead to rise in demand of its close substitutes. For example Xbox and play station are close substitutes when it comes to gaming, any increase in price of Xbox will induce some consumer to go for its substitute that is play station.

2. Another factor which influences elasticity of demand is the amount which is spent by the consumer on a good. If a consumer spent substantial part of his or her income on a good then any change in price of a good will lead to consumer switching from that good, however if consumer spends only small part of his or her income then change in price of a good will not lead to a drastic drop in sales of the good. So if a consumer is thinking of buying a car will pay higher attention to any change in price of a good, as compared to when he or she is taking decision regarding buying an apparel from supermarket.

3. Another factor which influences the elasticity of demand is the quantity of a good which is bought by the consumer of a good. A quantity which is bought regularly will have higher impact of rise in price as compared to that good which is bought in lower quantity. So for example if price of milk which is used daily goes up than consumer will switch to its substitute however if the price of ice cream where consumer spend only small portion of his or her income goes up then it will not affect the consumer that much.

0 comments… add one

Leave a Comment


Related pages


factors of demand pull inflationdemerits of globalisationformat of marginal costingwhat is autocratic leadership in businessdefine a traditional economymortgage hypothecationprofitabilty ratiocarriage inwardlong form of micrwholesale banking definitionconvertible bonds advantagesbenefits of convertible bondsdifference between quotas and tariffsexplain liquidity ratiodebit card wikidisadvantages of transfer pricingfdi & fiiexample of prestige pricingstatutory liquidity ratio in hindidisadvantages of borrowing moneymarginal costing in management accountingwhat is full form of slrdifferentiate between fixed cost and variable costunearned income entrydefine unsystematic riskexample of market skimmingcost push inflation examplesadvantages of socialismexample of unearned revenueassumptions of diminishing marginal utilityadvantages and disadvantages of borrowinglimitations of capital budgetingexample of skimming pricingcapital budgeting advantages and disadvantagesaudit evidencesdividend wikiadvantages of a takeoverdisadvantages of socialismadvantages and disadvantages of developing countriesprepaid insurance entrybill of exchange drawerwhat is full form of micrbhel company profilewhat are the advantages and disadvantages of certificate of depositwhat are different types of chequesadvantages of swot analysisadvantages and disadvantages of advertisementsdiscounting of billvertical mergerprepaid expenses journal entriesdrawbacks of advertisingjournal entry for outstanding expensescontingent liability accountingdefinition of barter systemdurable and nondurable goods exampleswhat are the advantages of capitalismdeferred revenue expendituredifference between induced investment and autonomous investmentpremium pricing strategy advantages disadvantageswhat are derivative marketscharacteristics of job costingconglomerate organizational structureadvantage of lifoadvantages and disadvantages of globalisation wikipediadifferentiate between fixed cost and variable costexamples of inelastic demand productsmeaning of advantage in hindidifference between an operating lease and a finance leasecrr and slr rbiexample of market penetration pricing strategydifference between cheque and draftwhat are the characteristics of monopolistic competitionwhat is endorseesystematic risk and unsystematic risk pdfdifference between gross and net revenuedefine materiality conceptdisadvantages of financial institutions